An obligation can be settled by making a payment of $1,500 now and a final payment of $11,000 in seven years (Allemative 1) Atematively, the obligation can be settled by payments of $1,000 at the end of every six months for six years (Alemative 2) Interest is 10% compounded semi annually. Compute the present value of each alternative and determine the preferred alterative according to the discounted cash flow criterion The present value of Alternative 1 is (Round to the nearest dollar as needed Round all intermediate values to six decimal places as needed) The present value of Alternative 2 is s (Round to the nearest dollar as needed Round all intermediate values to six decimal places as needed) Therefore, the best atemative is
An obligation can be settled by making a payment of $1,500 now and a final payment of $11,000 in seven years (Allemative 1) Atematively, the obligation can be settled by payments of $1,000 at the end of every six months for six years (Alemative 2) Interest is 10% compounded semi annually. Compute the present value of each alternative and determine the preferred alterative according to the discounted cash flow criterion The present value of Alternative 1 is (Round to the nearest dollar as needed Round all intermediate values to six decimal places as needed) The present value of Alternative 2 is s (Round to the nearest dollar as needed Round all intermediate values to six decimal places as needed) Therefore, the best atemative is
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:### Settlement of Financial Obligation: Discounted Cash Flow Analysis
An obligation can be settled by making a payment of \$1,500 now and a final payment of \$11,000 in seven years (**Alternative 1**). Alternatively, the obligation can be settled by payments of \$1,080 at the end of every six months for six years (**Alternative 2**). Interest is 10% compounded semi-annually. Compute the present value of each alternative and determine the preferred alternative according to the discounted cash flow criterion.
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**The present value of Alternative 1 is:** \$____
(Round to the nearest dollar as needed. Round all intermediate values to six decimal places as needed.)
**The present value of Alternative 2 is:** \$____
(Round to the nearest dollar as needed. Round all intermediate values to six decimal places as needed.)
**Therefore, the best alternative is:** ____
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